Opinion

I am a gamer. I like role-playing games like Fallout and Final Fantasy as well as real-time strategy games like Starcraft. However, according to the internet, I play these games all wrong. I like to take my time and get lost in the story. This is not the fastest or most efficient way to beat a game which puts me dangerously close to being a ‘Filthy Casual’ in internet-speak. That is, my goal is not to optimize my playthrough like a ‘Hardcore’ player might. It could be worse. I could be a n3wb. This really does tie back to investing, I swear. There are countless blog posts dedicated to crafting the most efficient portfolio. Finance Twitter is full of people who will argue asset allocations past the decimal point. Advisor forums are almost toxic with folks who belabor semantics, dredge up endless white papers, and worship at the altar of Modern…

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This post is not about investing. It will not have witty anecdotes. Feel free to skip this one if you’re looking for that stuff today. Fidel Castro is dead. It can feel like this is a news blurb about a place so far away about a people who are not like us. Why is this such a big deal? Not everyone’s family was as lucky as mine. On the way out of Cuba, my great-grandfather merely suffered through the indignity of having a soldier paw through his bag, keeping anything that looked valuable. Others risked the open water. Some didn’t make it off the shore. It’s not my place to tell their stories, but I can tell you the short version of my family’s tie to Cuba and why Castro’s death is a big deal to me. I do not look Cuban. I don’t speak Spanish. My grandmother was born there,…

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One of my favorite bits of wisdom comes from a Fairway client, “Change your plans because of the weather, not because of the forecast.” He was referring to boating, but it applies to investing as well. The political winds have shifted, potentially changing the economic and investing climate. Don’t get caught up in blanket statements about how things should turn out according to an expert’s model. The markets never behave the way they should. Likewise, we have three or four false alarms of snowpocalypse every winter and besides, a snow forecast for northeast Ohio means one thing if you live in Westlake, but something else if you live in Chardon (and something completely different if you’re in Naples for the winter!). Have a very happy Thanksgiving. I hope you get to spend it in the company of family and friends. Matt

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I’m tired of hearing the predictions. The people who were certain Brexit would fail were certain Trump couldn’t get elected President. These same people are certain of how the market will move going forward. Paul Krugman pulled the fire alarm the night of the election when market futures were down huge saying the market would never recover. Citigroup and Goldman Sachs predicted the possibility of every scenario except the one that happened (a market rally post-election). These folks wear their authority like a crown and revel in lording it over the masses. Perhaps once upon a time this authority derived from real, actionable knowledge, but today that crown has been pawned in exchange for pageviews, CNBC appearances, and perfect hindsight. They are desperate for your cash, but even more desperate for your attention. There is a fear underlying the headlines. It is not fear of political change or market turmoil….

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Donald Trump is President-elect of the United States of America. This election reminded me of the Brexit vote across the pond earlier this year. An entrenched power bloc assumed it had already won, but woke up the day after the election to a powerful reminder of the world outside of their ivory towers. I voted and I hope you did, too. So What Does Donald Trump Mean For The Markets? It means the uncertainty over who will be President is over. No kidding, right? It is cliche by now, but the market does hate uncertainty and knowing who will be in the White House allows companies to eliminate a variable from their business calculus. You don’t need to be a genius to navigate your portfolio through an election cycle; you need patience and informed optimism. Even smart people screw up and overreact to short-term blips. Nobel laureate Paul Krugman of the New…

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The Wall Street Journal has been publishing articles about passive investing recently. Many of these articles look like they are pro-passive, but are written by active management shops looking to damn passive with faint praise. My last post addressed the ‘settle for average returns’ fallacy. The second argument I often see in support of active management is that it outperforms in down markets. I’m not sold on the data behind this assertion, but let’s assume it’s true and active managers outperform during down markets. Maybe they aren’t completely invested and hold cash or maybe they just pick the stocks that don’t go down as much. Whatever the secret, CONGRATULATIONS! YOU BEAT THE MARKET DURING DOWNTURNS!!! Now you just need to know when the next downturn starts and ends so you can go active at the right time. That’s where the argument starts to break down. It’s difficult/impossible to predict what…

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With the recent flood of Wall Street Journal articles about passive investing, now is a good time to review the space. Money is pouring into firms like Vanguard and iShares, the leaders in the indexing revolution. Investors are seeing that despite perennial declarations of a “stock-picker’s market”, active managers consistently trail their benchmarks and charge large fees for the privilege of doing so. You’ll see below that I am an advocate of passive investing, but only when it’s done correctly. There are plenty of opportunities to use passive incorrectly or to get ripped off by a non-fiduciary product seller. What is passive? A passive investment is just a rules-based strategy. Technically, there should be a corresponding index. For example, if the rule is to weight the investment based on the number of vowels in the company’s name, there should be a high-vowel index that the strategy would use as a…

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Fairway’s third quarter commentary has been published. Keeping up with the Joneses has distracted Harvard’s endowment from its true mission. Here is some background on what happened: First, the actual endowment report. Harvard lost 2% over the last year, driven into the ground by what I call conspicuous sophistication. The Harvard Crimson leads the charge on reporting the results here. There is a pile-on by the WSJ (some good reporting here), NYT, and CNBC among others. Then the students weigh in via the school newspaper. If there’s one constant Harvard’s endowment can count on, it’s that the students will be vocal critics no matter what. The horror of their $36 billion endowment lagging peers “is unacceptable”. When the endowment was blowing the doors off of its peers, students felt that management was getting paid too much. Now that performance is lagging, students are re-thinking this – maybe it makes sense…

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Preparing for the swan, it’s possible to miss out on the bull. In my monthly commentary for Fairway, I asked “What does a 20% gain feel like?” Spoiler alert: it feels like right now. The S&P 500 is up about 20% since the bottom in February. However, no sales people were calling my office 6 months ago to pitch me on how to make the most of the next 20%+ market move to the upside. Pitches were framed entirely around disaster scenarios or worse… a sideways market (heaven forbid investing turn boring). The financial product industry has spent the last 7 years pitching products to survive the next Black Swan event (or more accurately, to beat the previous Black Swan), but what happens when the next Black Swan turns out to be a Bull? What is a Black Swan, anyway? It’s an unexpected event as outlined in Nicholas Taleb’s book…

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Happy Saint Patrick’s Day! It seems like reporters go out of their way to find the craziest people to put on camera for a story. It certainly seems to be the case in the financial entertainment community where you can find perma-bear hucksters given the same regard as respected economists and CEOs. When I see one of these jokers on CNBC I think of this video: I lump people calling for an audit of the Fed, urging a hand-count of gold ETF bullion holdings, and gold salesmen on AM radio in the “I want to know where the gold at” camp. Then there are the chartists who show a Hindenburg Omen or a Death Cross or a chart with labels on three axes or an overlap of today’s market over a chart of 1929 or 1987. These are the amateur sketch artists of CNBC. Contributors like Josh Brown do their…